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Big Patent Fee Awards May Be Short-Lived

December 10, 2015 | Posted in : Expenses / Costs, Fee Award, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Jurisprudence, Fee Request, Fee Shifting, Fees as Sanctions, Prevailing Party Issues

A recent Legal Intelligencer story, “Big Fee Awards in Patent Cases May Be Short-Lived” reports that a federal judge's decision to up the attorney fees awarded to the defense in a patent infringement suit was a direct result of a pair of 2014 U.S. Supreme Court decisions loosening the standards for fee-shifting in patent cases.  But the multimillion-dollar payout might be one of only a few in a short window before litigants tailor their approach in patent suits, intellectual property attorneys predicted.

The ruling Dec. 2 in Checkpoint Systems v. All-Tag Security, awarding an additional $1 million in attorney fees on top of the $6.5 million already awarded to the defendants, joins about 80 other fee requests addressed by courts across the country since the April 2014 decisions in Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health Management System.

Before Octane and Highmark, fees could only be awarded to the winning party under Section 285 of the Patent Act if a district court either found litigation-related misconduct or determined the litigation was both "brought in subjective bad faith" and "objectively baseless."

But the Supreme Court rejected that interpretation, finding it went further than Section 285 required. Section 285 of the Patent Act states in its entirety that "'the court in exceptional cases may award reasonable attorney fees to the prevailing party.'"  Because exceptional isn't defined in the act, Justice Sonia Sotomayor said district courts could determine if a case is exceptional in a case-by-case exercise of their discretion.

Many predicted at the time these rulings would stem so-called "patent trolls" from filing patent infringement suits or result in big paydays for the winning party.  But others said it simply gave the district court more authority and the rulings would differ depending on the judge hearing the cases.

Kelly Tillery of Pepper Hamilton, who represented defendant Sensormatic Electronics in the Checkpoint case, has tracked this issue post-Octane.  He said there have been about 80 rulings on fee requests with less than half actually awarding fees.

Tillery noted that many of the cases that reached fee decisions were filed before Octane was issued.  He said he expected to see a "flurry" of fee rulings over the next year or so and then he anticipates they will "drop off precipitously."

Tillery said he thinks people will learn the strictures of the high court's decisions and will start doing a better job of pre-litigation investigations, thus leading to more meritorious case filings.  "In two years from now, if you get hit with a meritorious 285 motion, you are an idiot," Tillery said.

Flaster Greenberg intellectual property partner Lynda Calderone said there are a few trends, when viewed together, that could have a noticeable impact on the filing of unmeritorious cases moving forward.

"The impact of Octane will be compounded by the recent implementation of a heightened pleading standard for patent matters resulting from amendments to the Federal Rules on Dec. 1, 2015," Calderone said.  "With patent pleading being more exacting and the availability of Octane motions, there will likely be a decrease in the number of poorly founded cases."

Michael J. Bonella of Condo Roccia Koptiw represents both plaintiffs and defendants in patent litigation.  He said he isn't sure that case filings will dip as a result of Octane and Highmark, but the potential fees that could be awarded if a case is deemed exceptional will likely go down.

"Some people are very aggressive about every little thing. ... That could come back to haunt you if you behave that way during the litigation," Bonella said.  "So [Octane and Highmark have] that effect.  I do think you will see people more focused on the main issues in the case early on because there is a little more incentive for people to focus on the salient issues right away."

Benjamin E. Leace of RatnerPrestia also noted that he hasn't seen a dip in case filings and hasn't seen a major rise in fee awards.  There are definitely more parties asking for fees, but courts still have to deem a case exceptional, Leace said.

While Leace said he and others in the industry thought Octane and Highmark would limit filings, particularly from so-called patent trolls, that hasn't happened as expected.  "If they are not going to decide on their own that this is a risk," Leace said of patent litigation plaintiffs, "you have to show them this is a risk.  I can't say I see that happening."

Defendants are still settling cases, which means no chance for a fee award.  It is only in cases that resolve at the motion to dismiss, summary judgment or verdict stage that can have a chance for a fee award, Leace noted.

Leace also pointed out that plaintiffs continue to sue multiple defendants over the same patent, meaning even a cautiously litigated case could result in a high fee award if all of the defendants successfully seek fees.

In Checkpoint, U.S. District Chief Judge Petrese B. Tucker of the Eastern District of Pennsylvania had awarded defendants All-Tag about $2.4 million in fees and Sensormatic about $4.1 million after they successfully defended Checkpoint's patent infringement action.  The U.S. Court of Appeals for the Federal Circuit, under its pre-Octane standard, overturned the fee award, finding the case was not exceptional.  The parties appealed and the Supreme Court ordered the case be reviewed under its Octane ruling.

In August, Tucker again found the case exceptional and reinstated her initial $6.5 million award.  On Dec. 2, Tucker granted an additional $1 million in fees between the two defendants to represent the fees accrued during the appeals process.  She rejected Checkpoint's objections to the fees, including that it did not owe fees for when the case was on appeal.

Tillery said that, with interest, he expects the total fee award for the two defendants to be about $10.2 million.  That request will be due this week.